Reply to: Decent level of retained profit, dividend timing?

[ASB]

tcp, havent reviewed the entire thread. But it may be worth considering taking some this year, paying the extra. And some next year. Reason for this is the possibility of the gap between the 40 and 50 percent bands narrowing and thus the possible risk of paying more if ypu take it all out in one go.

also may be worth considering upping the ohs stake depending on view on income shift in order to use more of her lower rate alllwance.

Personally I would be inclined to take the risk. Downside being you get taxed on it which is what would happen anyway.

[Wanderer]

So that just leaves the cheap loan option, paid back with interest over a longer period of time. I admit I haven't fully investigated this route, although my accountant said he wasn't a big fan of it, due to the s455 tax issue.

Yes, it would only ever be a cheap loan in your particular situation - you would have to pay it back within 9 months of the end of the company year too. If you have a flexible mortgage then this may be of value or if your circumstances change (ie lower income) in the next personal tax year then you might save tax too.

I imagine that some directors take loans and then find that they can't pay them back which will give the accountant a headache so I can see why accountants don't promote it...

[TheCyclingProgrammer]

You could take it in a subsequent tax year when you (or your spouse) don't earn as much and you could avoid paying higher rate tax. You could also close the company with a MVL and take it as a capital distribution which would lower your tax rate.

Alternatively, you can just pay it back with interest (currently 4% which becomes company profit and is paid back to you minus tax) so you've effectively had a cheap loan.

I'd only recommend doing it if you have a flexible mortgage though....

As long as there is enough retained profit in the company, we pay enough regular dividends to take me up to the higher rate threshold. This covers the cost of living wih money to spare, but nowhere near enough to cover repaying the loan.

I can't MVL and take the capital unless I intend to cease tradin or start a different business (or return to full time work). Well, I could, but it would be taking a chance with TIS rules. I'd rather not have that hanging over me. I know some people do this frequently, but it's not for me.

So that just leaves the cheap loan option, paid back with interest over a longer period of time. I admit I haven't fully investigated this route, although my accountant said he wasn't a big fan of it, due to the s455 tax issue.

[Wanderer]

So I take the loan and use it for my deposit. I've still got to pay that loan back. How do I do that without declaring a dividend and going into the highest tax threshold anyway?

You could take it in a subsequent tax year when you (or your spouse) don't earn as much and you could avoid paying higher rate tax. You could also close the company with a MVL and take it as a capital distribution which would lower your tax rate.

Alternatively, you can just pay it back with interest (currently 4% which becomes company profit and is paid back to you minus tax) so you've effectively had a cheap loan.

I'd only recommend doing it if you have a flexible mortgage though....

[TheCyclingProgrammer]

You can always take a directors loan to extract cash out of the company very efficiently, as long as you can pay it back within 9 months after the Ensor the company financial year. That could work out handy for your deposit without taking a 2x% tax hit.

I must confess, I've never really understood this.

So I take the loan and use it for my deposit. I've still got to pay that loan back. How do I do that without declaring a dividend and going into the highest tax threshold anyway? I don't get it. I'm not going to get the money anywhere else.

[JoJoGabor]

You can always take a directors loan to extract cash out of the company very efficiently, as long as you can pay it back within 9 months after the Ensor the company financial year. That could work out handy for your deposit without taking a 2x% tax hit.

[northernladuk]

Have a play around with some of the mortgage calculators (such as Barclays). LTV makes a big difference, the small changes in % make a big difference when talking about hundreds of thousands of pounds and 20-30 year timescales. Personally I'd want max of 75% LTV to get good deals.

Indeed but you have to have your wits about you. Just check that the reduction is rate is worth the extra cash. Put another 20k in to achieve an extra 0.5 to 0.75% reduction may not be the most prudent path to take. I seem to remember a good excel calculator on the web you could populate that compared one mortgage against a different mortgage plus savings plan/ISA and the numbers were quite surprising.

[morf]

Have a play around with some of the mortgage calculators (such as Barclays). LTV makes a big difference, the small changes in % make a big difference when talking about hundreds of thousands of pounds and 20-30 year timescales. Personally I'd want max of 75% LTV to get good deals.

[Wanderer]

Don't diddle about. Close the company before the end of this personal tax year (5th April) and take the retained funds as a capital distribution then setup a new one with a 50/50 share split. New tax year, new company, new wife. Job's a good 'un.

[TheCyclingProgrammer]

If you are borrowing below 85% loan to value the rates quoted by First Direct are not overly competitive although if they are fee free that is a good thing.

Without knowing specifics it is very difficult to provide figures but a quick 2 minute look shows that a contractor friendly lender can offer a 5 year fixed rate of 3.89% (albeit with a £999 fee) or a 2 year fixed rate of 3.19% (again with a £999 fee).

You may find that you can get even better than that if you can prove your income through your accounts. This is something a contractor specialist mortgage broker can look into for you as well.

Well I have 5 years of accounts, so I may be in touch. I certainly intend to shop around although First Direct seem to be up there with the best deals.

[Power Mortgages Ltd]

This is going off on a tangent slightly, but I've just been looking at First Direct's mortgage deals again. If we could find a property for £240k with a 40k deposit, that would give us an 83% LTV, which doesn't seem too bad. At this level, First Direct offer a 5 year fixed deal of 3.9% fee free (£954 monthly repayment) or 2 years at 3.7% (£897 monthly) on a 30 year term which both seem reasonable, and within my ideal £1000/month repayment maximum budget.

Not sure if I'd get a better deal through a contractor mortgage specialist so I'd have to investigate further.

If you are borrowing below 85% loan to value the rates quoted by First Direct are not overly competitive although if they are fee free that is a good thing.

Without knowing specifics it is very difficult to provide figures but a quick 2 minute look shows that a contractor friendly lender can offer a 5 year fixed rate of 3.89% (albeit with a £999 fee) or a 2 year fixed rate of 3.19% (again with a £999 fee).

You may find that you can get even better than that if you can prove your income through your accounts. This is something a contractor specialist mortgage broker can look into for you as well.

[Clare@InTouch]

This should be something that you can easily work out.

In my case, if I was to declare an extra £40k dividend over and above the £40k we normally take out of the company on an annual basis, my 75% share (£30k) would be taxed at the higher rate, effectively 25% of the net, so £7.5k.

It's easy enough for anyone to work out, if they know their expected income.....

Take the higher rate limit of £41,450 for 2013/14, reduce by any other income, then divide by 10 and x by 9.

So £41,450 less salary of say £7,692 leaves £33,758 /10 x 9 = £30,382 to get the net dividends (being the physical amount you can take).

Any dividends above that limit will be taxed at effectively 25% of the net, so take £40,382 and you'll get a tax bill of £2,500.

If you have any other income - bank interest, foreign income, other salary, rental profit - deduct that from the £33,758 before calculating the net dividend.

It gets more complex if you have certain losses, other dividends, or income over £100k etc, but it will at least give you a general idea.

[BillHicksRIP]

Thanks!

[TheCyclingProgrammer]

Say you do take out a large chunk, what % of it would be reasonable to set aside for your future tax bill, assuming your past few years income has been ~50k?

This should be something that you can easily work out.

In my case, if I was to declare an extra £40k dividend over and above the £40k we normally take out of the company on an annual basis, my 75% share (£30k) would be taxed at the higher rate, effectively 25% of the net, so £7.5k.

[BillHicksRIP]

Say you do take out a large chunk, what % of it would be reasonable to set aside for your future tax bill, assuming your past few years income has been ~50k?